Reference no: EM132672704

Question - Learning curve

Sillitas SA has developed a new type of seats for luxury cars. The estimated labor time for the first unit is 12 hours, but a learning curve of 75% is expected for the first 8 units produced. The hourly cost of labor is $ 15. The cost of materials and other variable overhead costs are expected to total $ 230 per unit. Sillitas SA plans to set the price by adding a 50% margin to the total variable costs per seat, with the cost of labor based on the incremental time it takes to produce unit 8. b = -0.415

a. Calculate the price that Sillitas SA plans to apply for the new seat.

The first phase of production was completed for the new car seat. The first unit actually took 12.5 hours to complete, and the total time for the first 8 units was 34.3 hours at which point the learning effect stalled. Sillitas SA is planning to adjust the price to reflect the time that unit 8 actually took.

b. Calculate the real rate of learning and indicate whether this implies that the workforce learned more or less quickly than expected.

c. Briefly explain if the price adjusted by Sillitas SA will be higher or lower than the price that was originally estimated. You are NOT required to calculate the new price.